The following is an excerpted transcript from ABC News' Terry Moran's interview with President Barack Obama on health care reform and the challenges still facing him during his presidency, for "Nightline," in Shaker Heights, Ohio, July 23, 2009.

TERRY MORAN: So, Senate Majority Reid has said today that there will be no vote in the Senate on health care reform before the August recess. That deadline that you were insisting on. That deadline's gone now. How much of a setback is that?

PRESIDENT OBAMA: You know, given the progress that I'm seeing made, as long as everybody is working steadily, as fast as they can and particularly the Senate Finance Committee, which I think is the committee that a lot of folks are waiting for. If that gets done before the August recess, I feel pretty good because what happens then is we always knew the House and the Senate bills wouldn't match up. We're going to have to come back in September, make those bills match up. There are going to be a lot of negotiations and a lot of work that still takes place. You know, our general view is we can get this done by the fall.

And so this doesn't set back that schedule, but, as I said before, frankly if you don't express a sense of urgency about this thing then people always say, "let's put it off." And I really do think that the families that I talk to who are struggling with health care right now can't afford it to be put off. We've got to start making decisions about our fiscal projections long term. And if we're not getting control of health care costs, health care inflation, then that means we're going to have to make much more drastic decisions about other programs down the road because we're just not going to have enough money.

So there are a lot of things that I think have aligned to get this done this year. And I want to make sure that I'm keeping the pressure up.

MORAN: But they blew your deadline, the first deadline. And I wonder if you feel as if you look at the polls that things are slipping away. It seems that the more people focus on your health care plan, the less they like them.

OBAMA: Well, Terry, I don't think that's accurate.

MORAN: That's what the polls are showing.

OBAMA: No, no. What the polls are showing is, is that the more they focus on the political arguments that are out there, as opposed to my plan, the more anxious people get. But that happens every time we debate health care. It's always happened. That's not a reflection of us walking through the American people on our plan.

That's a reflection of the fact that this debate consistently degenerates into a certain pattern, which is, government takeover of health care and you know, this is going to be radical and, you know, somebody's going to get between you and your doctor.

And those scare tactics, which have been employed consistently for the last 40 years, they get some traction. They certainly get traction in the media. And as a consequence -- and I think people even if they're dissatisfied with their health care right now, they get nervous, which you know, I completely understand. And so my job has been to make sure that people understand the status quo is untenable.

If we do nothing, I can guarantee your premiums will double, we'll continue to see 14,000 people a day lose their health care. More employers are going to either load up more costs onto their employers or just get rid of health care altogether. And it's guaranteed that we'll blow the federal budget to a point where we essentially can't provide other vital services.

And you're already seeing that at the state level where states because Medicaid expenses have basically had to cut back on things like higher education, which pushes tuition up. All those things we know will happen if we do nothing. And, you know, my job is just to remind people that standing still is not an option.

MORAN: One of the concerns is cost. People are looking at the cost of this plan, the Congressional Budget Office. By the way, you invited the director of the Congressional Budget Office to the White House.

OBAMA: Right.

MORAN: He had given this report, which was very damaging to your plan. A lot of people thought that was improper, that you were trying to muscle an independent arbiter of this debate.

OBAMA: Terry, first of all, he was remarking on the House bill, not my plan, right? So, I think it's important to get that clear. Number two, I invited him to come alongside a whole range of other health care experts to tell me exactly what they thought the most effective ways to bend the cost curve would be. And in fact, there was a pretty broad consensus that the plans that we had put forward around the MedPAC proposal, for example, which is essentially a commission to deal with doctors and health experts finding the best ways to improve quality while lowering costs. That that, in fact, was one of the most important levers to drive health costs savings in the system.

It turns out that we had proposed that a month before Mr. Elmendorf had presented his views. It wasn't at that time incorporated in the House bill. It now has been incorporated in concept in the House bill. In fact, that meeting was very productive in helping to encourage House members to adopt a proposal we'd already put forward.

MORAN: So you weren't leaning on him?

OBAMA: Terry, we don't lean.

MORAN: You're the president. You can.

OBAMA: My job as president is to get the facts and the facts are on our side in this situation.

MORAN: Do you think one of the problems is that Americans use too much health care? That we get too many drugs, too many surgeries, too many treatments, too many tests? And that one of the things that your plan would do is cut back on how much health care we use as a country?

OBAMA: I think that we don't get the right health care in the right circumstances. Now, there are some people who don't get enough health care. That's absolutely certain. Folks who are using the emergency room when they should be going to see a doctor for regular checkups.

But I think the big problem is, is that -- and I mentioned this in the town hall meeting. We'll have a situation in which we take five tests when we know one test would be sufficient, as long as that one test would have been forwarded to the other doctors, and specialists, and nurses who needed it to help treat the patient. That doesn't happen right now. But, we're paying for five tests.

So if we could get a system where that one test is properly distributed, we all save money. And there are examples of that kind of breakdown in the system across the board. We don't spend enough money on prevention and wellness. We know that. So, as I've mentioned again in the town hall meeting, that a hospital or a medical system may not get reimbursed for a nutritionist who's helping somebody control their diet, but, they will reimburse for a $30,000 foot amputation.

So the real issue is, are we getting the best value for the money that we are already spending? And the answer is no.

MORAN: And under your plan, it's the government that will put real muscle ... into rationalizing or structuring the health care system so that we use less, use it more efficiently, or we use less. It's the government that will play that major role.

OBAMA: The government would play that role with respect to money that the government is spending. Right? Which it always -- it currently plays that role. That's not a change.

So Medicare and Medicaid -- those programs in which the government is involved and honing up dollars, I think taxpayers would expect that we spend that money wisely. We don't want to see that money wasted on weapons systems that aren't needed. We don't want it spent on welfare programs that don't work. And we shouldn't want that spent on tests that aren't making people better.

So that's true of the public dollars that are going to be used. With respect to the private sector, what we're hoping is, is that by advertising what best practices are that doctors and patients are going to have better information and they're going to start saying, hey, you know what, it turns out that this treatment, which is cheaper, leads to better results than that treatment. And they will start making changes in how they practice.

And we also do want to reform the insurance industry so that, as I mentioned before, practices like excluding people for pre-existing conditions, or dropping people for coverage unfairly, that those reforms are put in place. That will affect the private marketplace.

MORAN: When you were campaigning for president you said, if you were starting from scratch you would want the single-payer, government-run national health care system.

But, we are starting from scratch.

OBAMA: That's not exactly what I said, Terry.

What I said was, if I am starting from scratch I think that the single-payer system could make a lot of sense. But that's not the tradition that we've inherited over the last 50 years. We have an employer-based system. And so as a consequence, for us to simply transition and scrap the old system would be extraordinarily disruptive and I don't want to disrupt people's care. I don't want to add to their insecurities right now. I want to add to their securities.

And that's why what we're trying to do is in a very steady way, build onto the existing system. Make it work better and give people more security and make sure that more people have coverage at the same time as we're making it more cost efficient.

MORAN: But you also said that this public option, this government program that you're proposing for health care, could be, you said, a transition to a single-payer national health care system.

In your heart of hearts, is that what you would like to see, that gradually we would transition to national health care?

OBAMA: No. I think that what I want is an American system that works well for the American people. And I think it is possible, and there are examples out there, of private systems, a free market in health care. But a situation in which we assure that everybody has coverage.

That there are certain rules of the road and certain practices that are observed by insurance companies so that people are getting a fair deal. And I would like to make sure that all the families that I'm hearing from day in and day out who are getting battered by rising health care costs or no health care at all, that they get some relief.

And I'm also, you know, looking at the federal budget projections for the next 10, 20 and 30 years. And I feel a responsibility that if we don't do something about it then we are going to have some really bad choices down the road. And that's the irony of this thing.

What's been fascinating to me is the degree to which some of the same folks who are responsible for handing me trillions of dollars worth of deficits over the next decade because they didn't pay for tax cuts or initiatives that they had put forward, are now suggesting somehow that this is another big government spending plan, when in fact, they know, you know, and for some reason this doesn't get hammered home as much I'd like to see in the press, that if we don't reform the system that is the absolute worst thing we could do in terms of our fiscal situation. That's not disputed.

And so the only way that we're going to get control of this thing is if we reduce health care inflation to manageable levels. And I think that can be done.

MORAN: I want to shift gears here. Afghanistan -- this has been the deadliest month for American and NATO troops in Afghanistan ever.

Define victory in Afghanistan, or maybe that's not the right word.

OBAMA: I'm always worried about using the word "victory" because, you know, it invokes this notion of Emperor Hirohito coming down and signing a surrender to MacArthur.

You know, we're not dealing with nation states at this point. We're concerned with al-Qaeda and the Taliban, al-Qaeda's allies. So when you have a non-state actor, a shadowy operation like al-Qaeda, our goal is to make sure they can't attack the United States.

Now I think that's going to require constant vigilance. But with respect to Afghanistan, what that means is -- or Pakistan, for that matter. What that means is that they cannot set up permanent bases and train people from which to launch attacks. And we are confident that if we are assisting the Afghan people and improving their security situation, stabilizing their government, providing help on economic development so they have alternatives to the heroin trade that is now flourishing.

If on the Pakistani side, we are helping to stabilize the northwest provinces and giving them assistance and providing people a good livelihood. Those things will continue to contract the ability of al-Qaeda to operate. And that is absolutely critical.

MORAN: Is Pakistan helping or hurting American efforts in Afghanistan, or both?

OBAMA: Well, I think that at this point what you've seen is the Pakistani military step up in a way that we have not seen. I mean, they are engaged in serious fighting of al-Qaeda allies in that region and are trying to reassert control into areas that have become lawless.

There are downsides to that. You're seeing the displacement of a lot of people in those battle zones. And I'm very worried that we, as an international community, are helping Pakistan to deal with those people who've been displaced because we don't want that to be a new recruitment tool for radicals saying that, you know, you've been chased out of your home because of Pakistan, which that kind of propaganda I think is something that we have to be careful about.

I think that the Pakistani government in the past has been -- has tried to take the tiger by the tail and use in some cases, you know, militants to their advantage strategically. And I think they now realize that that was a mistake and my hope is that we're going to see them continue to take seriously the threat not simply to us, but, probably more acutely, the threat to Pakistan.

MORAN: Last question.

As you know there's a lot of curiosity about you and what you do, what you wear, all these things. And where you worship. If I may ask, how has -- how have the responsibilities of the presidency affected your spiritual life, if at all?

OBAMA: Well, I had a habit of praying every night before I go to bed. I pray all the time now (laughter).

Because I've got a lot of stuff on my plate and I need guidance all the time. We haven't selected a permanent church home in D.C. I mentioned earlier that with all the transitions for the girls, but also, still trying to figure out how to move this big apparatus called the presidency without being hugely disruptive to congregations. How do we time that, how do we think about that? That's something we're still sorting out.

You know, we've been attending church -- there's a little chapel up in Camp David when we go up there. There's a wonderful young pastor up there -- chaplain -- who does just wonderful work. And the Camp David families attend.

And I get -- this is one use of my BlackBerry. My Faith and Neighborhood Initiatives Director Joshua DuBois, he has a devotional that he sends to me on my BlackBerry each day. That's how I start my morning. You know, he's got a passage, scripture, in some cases quotes from other faiths to reflect on.

But, look, you know, when you're in this job I think that every president whose had it is constantly humbled by the degree to which there are a lot of issues out there and the notion that one person alone can solve all these problems I think you're cured of that illusion very quickly. This is something where you just hope that you are aligning your work with His purposes and that you're attuned to the needs of the people you're there to serve.